DEMONSTRATION PROBLEM
After several months of planning, Jasmine Worthy started a haircutting business called
Expressions. The following events occurred during its first month of business.
1. On August 1, Worthy invested $3,000 cash and $15,000 of equipment in Expressions in
exchange for its common stock.
2. On August 2, Expressions paid $600 cash for furniture for the shop.
3. On August 3, Expressions paid $500 cash to rent space in a strip mall for August.
4. On August 4, it purchased $1,200 of equipment on credit for the shop (using a long-term
note payable).
5. On August 5, Expressions opened for business. Cash received from haircutting services
in the first week and a half of business (ended August 15) was $825.
6. On August 15, it provided $100 of haircutting services on account.
7. On August 17, it received a $100 check for services previously rendered on account.
8. On August 17, it paid $125 cash to an assistant for hours worked during the grand
opening.
9. Cash received from services provided during the second half of August was $930.
10. On August 31, it paid a $400 installment toward principal on the note payable entered
into on August 4.
11. On August 31, it paid $900 in cash dividends to Worthy.
Required
1. Arrange the following asset, liability, and equity titles in a table similar to the one in
Show the effects of each transaction using the accounting equation.
2. Prepare an income statement for August.
3. Prepare a statement of retained earnings for August.
4. Prepare a balance sheet as of August 31.
QS 1-8
Applying the accounting equation A1
1. Use the accounting equation to compute the missing financial statement amounts (a), (b), and (c).
2. Use the accounting equation to compute the missing financial statement amounts (a) and (b).
Exercise 1-8
Using the accounting equation A1 P1
Answer the following questions. (Hint: Use the accounting equation.)
a. Office Store has assets equal to $123,000 and liabilities equal to $47,000 at year-end. What is
the total equity for Office Store at year-end?
b. At the beginning of the year, Addison Company's assets are $300,000 and its equity is $100,000.
During the year, assets increase $80,000 and liabilities increase $50,000. What is the equity at
the end of the year?
c. At the beginning of the year, Quaker Company's liabilities equal $70,000. During the year, assets
increase by $60,000, and at year-end assets equal $190,000. Liabilities decrease $5,000 during
the year. What are the beginning and ending amounts of equity?
SOLUTION TO DEMONSTRATION PROBLEM